Lewis: BofA may pay back bailout by 2010

Bank of America Corp. could pay back its $45 billion in government capital by late this year or early next year depending on the economy, chief executive Ken Lewis said in an interview Tuesday with the Observer.

Lewis also said he expects his Charlotte-based bank to be profitable this year “absent some unexpected meltdown” and to pass the government's stress test. He also said he'd like for the bank to make $30 billion in a year before he exits.

Lewis has previously said he is eager to return the money from the Troubled Asset Relief Program but that it would likely take two to three years to pay off the debt. The capital infusion has come with intense public scrutiny and restrictions on executive compensation and shareholder dividends.

He said he could see paying it back as the recession ends and maybe a portion of it before that. “In terms of paying it totally back then you're probably talking about sometime late this year or sometime early next year when we see the economy improving,” he said.

The bank could turn over the money now if it weren't maintaining higher-than-normal capital cushions because of the “fragile” state of the financial system, he said. He also noted that the money is not a “gift” from taxpayers. The bank has already made an initial $402 million dividend payment to taxpayers.

When the Treasury created TARP in October, it decreed that banks had to hold onto their funds for at least three years, or raise replacement capital. A last-minute provision inserted in the stimulus bill last month deleted the requirement about replacement capital, making it easier for banks to pay back the money more quickly. A number of smaller banks have already filed notice with the Treasury Department about plans to pay back the investment.

In the stress tests, federal regulators are reviewing the nation's biggest banks to see if they have enough capital to absorb losses in an extreme economic downturn.

“Given all that I know, I am confident that we will pass the stress test,” he said in the interview in his 58th floor office in the Bank of America Corporate Center.

As for a recent upturn in bank stocks, Lewis said investors are wondering whether the market has hit bottom. Bank of America shares have climbed 99 percent since March 6, closing up 1.5 percent on Tuesday to $6.27. The bank's shares are still down more than 50 percent this year.

The bank had been seen as one of the nation's strongest banks until problems surfaced with its Jan. 1 acquisition of Merrill Lynch. On Jan. 16, Bank of America disclosed a bigger-than-expected fourth quarter loss of more than $15 billion at Merrill, and the bank said it needed an extra $20 billion in government capital to stabilize the purchase.

Despite these issues, Lewis said he doesn't regret forging the deal, valued at $50 billion when it was announced in mid-September.

“I have to look out over a longer horizon than say the last three or four months,” he said. “If I look out over an intermediate timeframe such as the next three to five years or a longer time timeframe of five to 10 years I think Merrill will prove to be one of the best acquisitions we've ever made.”

In mid-December, Lewis met with regulators in Washington about possibly backing out of the acquisition, but the bank proceeded under the government's urging. “We got strong advice from the federal government we should do the deal,” Lewis said. “We listened to them, but at the end of the day we made our own decision.”

In the interview, Lewis also addressed whether he is concerned about keeping his job amid the bank's recent struggles. “I have not given it one single moment of thought,” he said. “I have been at this company almost 40 years, and what I want to do is see us get through this, and then start to realize our full potential and make $30 billion after tax, which is what we should make in a good time.”

At a January board meeting, he said his job status did not come up and that directors talked about what they “would normally would talk about at a time like this.” Asked whether he expects to retire when he turns 65 in 2012, he said: “I'm looking to pay back the TARP money and making $30 billion after tax and then I'll regroup.”

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Lewis said the bank had a shot at hitting the $30 billion mark in 2011. The bank's biggest annual profit was $21.1 billion in 2006. Last year, it made $4 billion in net income, not counting $1.5 billion in dividends paid to preferred shareholders. The bank is scheduled to report first-quarter earnings on April 20.

As for his biggest regret in recent months, Lewis said he made a mistake in taking so much TARP money. The bank could have accepted $5 billion to $10 billion in January, instead of $20 billion, and kept its capital ratios in reasonable shape, he said.

“It put us too far away from the mainstream, and it did lump us together with Citigroup,” he said, referring to the institution regarded as the most damaged of the big U.S. banks. “We did it in an abundance of caution because you just don't know how bad things could get, but that was a mistake and that caused us to be painted with a broad brush in ways that we don't deserve.”

Asked whether the bank has been unfairly criticized for anything in recent months, he said: “I would need some time to compile a list.”

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